Definitions of entrepreneurshipPosted: 25 May 2011
In The Handbook of Economic Sociology, Howard E. Aldrich has a good summary and evaluation of various definitions of entrepreneurship, most of which have also been alluded to on this blog already. According to Aldrich, there are four competing definitions of entrepreneurship:
- The setting up of high-growth and high-capitalisation firms (as opposed to low-growth and low-capitalisation ‘lifestyle’ businesses);
- Innovation and innovativeness leading to new products and new markets (the Schumpeterian tradition);
- Opportunity recognition (the Kirznerian tradition);
- The creation of new organisations.
According to Aldrich there are problems with all four of these definitions. There is a strong selection bias with the first two. Whether a firm has high growth and had introduced an innovation can only be established retrospectively and high capitalisation is no guarantee of high growth or innovativeness. I would add that the political consequences of these definitions are also far-reaching, as they may lead to government policies favouring firms that are already in a privileged position, rather than provide support where it’s more needed.
The second and third definition according to Aldrich also suffers from the problem of being applicable to a wide range of situations, with entrepreneurship just being one. The effect of that is most evident e.g. in the afterlife of Schumpeter’s concept, which became more popular in the theory of the firm as a way of describing the R&D function, corporate venturing and intrapreneurship, than new venture formation in entrepreneurship studies. According to Aldrich, entrepreneurship studies had forgotten Schumpeter.
The adoption of Kirzner’s notion of “opportunity recognition” also had a particular disciplinary effect: because “opportunity recognition” has to do with an entrepreneur’s alertness and alertness seems to be a something that happens in the mind, this stream of research turned entrepreneurship into a problem of cognitive psychology, preoccupied with the figure – but especially the mind – of the entrepreneur.
The problem with the fourth definition according to Aldrich is that it is difficult to delineate when actually new organisations emerge as new social entities. It is both a philosophical problem and a methodological problem. Nevertheless, this last definition has been gaining support in entrepreneurship studies and Aldrich also picks it as the one to zoom in on in the rest of his chapter.
What can we make of these rival definitions and corresponding theories and their consequences from an STS/ANT perspective? The problem of selection bias in the first two definitions makes them interesting candidates for considering the political consequences of those theories, and the current work-in-progress UK government policy of channelling support away from ‘lifestyle’ firms to those perceived as ‘high-growth’ firms provides an excellent case study.
At the same time Schumpeter’s theory of innovation/entrepreneurship as “the creation of new combinations” deserves renewed attention. An argument could be made for disentangling these two concepts and clarifying their relationship, bringing into the picture those new firms as well that adopt the “new combination” but in themselves may not fit the “high-growth” and “innovative” label. In effect I’m arguing about establishing a link between definitions 2 and 4 that would not be subject to the selection bias (i.e. empirical work would focus not only on the innovating firm that is already in a high-growth stage with its innovation in diffusion but on any enterprise that participates in some form in the adoption or distribution of the innovation, even if it’s a low-growth ‘lifestyle’ firm and therefore seemingly only a consumer or repeater of the innovation). The Schumpeterian concept of “new combinations of resources” also offers an opportunity to examine the nature and origin of those resources (both human and nonhuman) that are being combined, as well as the very activities and practices that are needed for creating a new combination.
Kirzner’s thoughts on entrepreneurship could also be revisited from a ‘new’ new economic sociology perspective. However, rather than focusing on the thought processes of the entrepreneur, it might be more interesting to focus on the aspect of Kirzner’s theory that deals with the relationship between the entrepreneur and the market and considers the entrepreneur as a market participant.
The fourth definition is of course naturally attractive to an STS-inclined researcher, considering that the emergence of new entities has always been a core interest of STS and ANT studies. When it comes to entrepreneurship however, it would be important to consider the same point as with the Schumpeterian theory, namely that the role of seemingly repetitive or imitative venture creations should not be disregarded in favour of the highly innovative or controversial ones. Perhaps a Gabriel Tarde quote can be helpful here:
The problem can be summed up as follows: to grasp as closely as possible the genesis of inventions and the laws of imitations. Economic progress supposes two things: on the one hand, a growing number of different desires, for without a difference in desires, no exchange is possible, and, with the appearance of each new, different desire, the life of exchange is kindled. On the other hand, a growing number of similar exemplars of each desire taken separately, for, without similitude, no industry is possible, and, the more this similitude expands or prolongs itself, the more production is widened or reinforced. (Psychologie économique, cited in Latour and Lépinay, p. 35)